FCA consultation paper and other listing regime developments

The Financial Conduct Authority (FCA) has published a second consultation paper (CP18/36) on amendments to the FCA Handbook to take account of Brexit. The Government has also published a bill on implementing legislation that has been adopted by the EU but has not come into effect on Brexit day, including the remaining provisions of the Prospectus Regulation (EU 2017/1129).

FCA consultation paper

The FCA is consulting on detailed changes to the Handbook to take account of a no-deal Brexit.

For listed companies, the proposed changes that will be of most interest are amendments to the Listing Rules (LRs), the Prospectus Rules (PRs) and the Disclosure Guidance and Transparency Rules (DTRs) to reflect the Treasury proposal that, after Brexit, the UK’s primary markets regime should apply to all issuers that have securities admitted to trading on a regulated market, or admitted to listing, in the UK, or are making a public offer in the UK, irrespective of the country in which the issuer is incorporated. The Government has not yet published the draft statutory instruments that underpin the changes proposed in this consultation but has published Explanatory information on the draft Official Listing of Securities, Prospectus and Transparency (Amendment) (EU Exit) Regulations 2019 and Explanatory information on the draft Market Abuse (Amendment) (EU Exit) Regulations 2018. The Regulations themselves are expected to be published shortly.

Key points to note are that, in the event of a 'no-deal' Brexit:

• Transparency requirements – The Transparency Rules in DTR 1A and DTRs 4 to 6 currently apply to issuers with securities admitted to trading on a regulated market in the EU for which the FCA is the home competent authority. The FCA is proposing to remove the home/host member state distinction so that, post-Brexit, the Transparency Rules will apply to all issuers with securities admitted to trading on a UK regulated market.
• Corporate governance requirements – There is currently an exemption from the requirements in DTR 7.1 (Audit committees) for an issuer with a parent undertaking that is itself subject to DTR 7.1 or to the equivalent requirements under the Audit Directive as implemented in another EEA State. Post-Brexit, this exemption will only be available where the parent undertaking is subject to DTR 7.1 (and so not where it complies with equivalent requirements in another EEA State). The current exemption will continue to apply in respect of financial years beginning before Brexit day.
• Validity of prospectuses approved and disclosures made in other EU Member States – Issuers which currently rely on a passported document to offer securities to the public in the UK or admit securities to trading on a regulated market in the UK will, post-Brexit, need to have a prospectus approved by the FCA.
• Free float – Under the current rules, when an issuer applies for admission of shares, or depositary receipts over shares, to the Official List, it must demonstrate that enough securities of that class are distributed to the public in one or more EEA States. This is also a continuing obligation for listed issuers. The FCA is proposing to remove the reference to EEA holders in the rules. This will mean that holders from any jurisdiction can be counted towards the free float.
• Binding technical standards – Like the FCA’s previous Brexit consultation paper (CP18/28) (see our corporate update 2018/21), the consultation paper contains proposed amendments to binding technical standards (that is the detailed EU rules that will be incorporated into UK law and for which the FCA will have responsibility after Brexit) to deal with deficiencies resulting from leaving the EU. The binding technical standards covered by this consultation paper include those under the Market Abuse Regulation (including the Commission Regulations on insider lists and notification of PDMR dealings) and those under the Prospectus Regulation (that is, the Commission Regulations on supplementary prospectuses and the approval and publication of prospectuses and dissemination of advertisements).
• FCA Guidance – The consultation paper also says that the FCA will not update guidance published outside of the Handbook (referred to as non-Handbook guidance), which would include the UKLA guidance notes, before Brexit. Instead, it expects users to interpret the guidance sensibly and purposively, taking into account the provisions of the European Union (Withdrawal) Act 2018 and any changes made to the underlying requirement as it is preserved or converted into UK law.

The consultation closes on 21 December 2018.

Implementation of financial services legislation

The Government has introduced the Financial Services (Implementation of Legislation) Bill [HL] to the House of Lords (HL Bill 143). It has also published Explanatory Notes to accompany the Bill. The Bill will, among other things, enable the remaining provisions of the Prospectus Regulation, which will become directly effective across the EU in July 2019, to be implemented in the UK.

The Bill will provide the Government with the power to implement and make changes to ‘in flight’ financial services legislation for two years after Brexit in a ‘no deal’ scenario. ‘In flight’ legislation is EU legislation that:

• has been adopted by the EU, but does not yet apply so cannot be captured by the European Union (Withdrawal) Act 2018. This legislation is listed in clause 1 of the Bill and includes the provisions of the Prospectus Regulation that will apply from July 2019; or
• is currently in negotiation and may be adopted up to two years post-Brexit. This legislation is listed in the Schedule to the Bill.